Let’s treat religion as just another service which people can choose to purchase. Thus, each religion needs to compete with other religions, and every religion needs to compete with all other goods and services available in the market for the time and money of consumers. If I look at religion from this perspective, then as an economists I can ask whether there is anything special about religion which warrants government support, especially financial support.

Economists are concerned with economic efficiency, the allocation of available resources to maximize the aggregate income of a country. Hence, economic theory postulates that any good or service which generates positive externalities or income-enhancing, third party effects should be subsidized. On the flip side, any good or service which generates negative externalities should be taxed.

Does religion produce any positive externalities which would justify the tax benefits (implicit subsidies) provided by many governments?

A civil society is one where the overwhelming number of members voluntarily obey the rules and laws, and do not consider committing a crime, even when it is rational to do so. A civil society leads to greater economic efficiency and higher levels of productivity and incomes since governments have to use fewer resources to monitor and enforce the rules. In addition, people have more confidence in participating in markets because they have greater levels of trust in dealing with others. They also have to use fewer resources to negotiate, monitor and enforce contracts, and to search for data to verify the claims of other market participants.

A civil society produces positive externalities. Does religion contribute to creating a civil society?

Morality – the ability to distinguish between right and wrong – plays an important role in a civil society. But is morality the legacy of education, democracy, prosperity, culture and/or religion? I do not know.

All religions emphasize their own respective rituals. All religions also claim to teach the difference between right and wrong. Rituals are only important, but might not be necessary, if they reinforce moral lessons. Often they do not. So morality might be independent of rituals. Furthermore, morality might be independent of religion. Thus, religion might not generate any positive externalities.

On the other hand, some rituals might play a role in raising one’s spirits, thus augmenting the productivity of people. If so, then religion might create positive externalities.

So what is it?

I am not convinced that there is a sound argument supporting subsidization of religion. Indeed, I tend to lean strongly in the direction of complete and unambiguous separation of church and state, and the subjugation of all religious laws and rituals to the secular laws of the state. But why?

Over the millenia, religions have engaged in what Schumpeter might have labeled destructive competition for supremacy. While such competition among companies is critical for economic progress, it has proven extremely costly, with enormous negative externalities for people and civilization, when religions engage in this behavior.

Furthermore, religions have created another layer of tribalism – the division of people into smaller groups, each one believing that it is superior to all other groups. Economists favor the elimination of all barriers to trade and the mobility of people and capital. Tribalism in all its forms creates barriers. Barriers limit economic and personal potential, thus reducing aggregate incomes, wealth and well-being.

While there might be some psychologically driven, positive externalities stemming from religion, I suspect that the negative externalities dominate. Therefore, religion should be treated like most every other consumer service and not be given preferred treatment by government. If anything, religion should be subject to additional taxation to limit its negative externalities.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.